Capitalism The sin of the world or something else?

As the G20 summit comes into full swing this past week we saw all the protests in Hamburg against the US specifically and the west in general because all the wealth we supposedly have. So is it evil? What makes it work, and yes it does work, all you have to look at is the individual success of the citizens! For a detailed analysis of Capitalism I would refer you to economists like Thomas Sowell or Walter Williams who both are examples of what capitalism is really all about, for those more politically inclined I refer to Dr. Ben Carson and his story. Capitalism allows for opportunity, it requires competition, but what is behind it? Looking at this from an engineering perspective I tend to break things down into the underlying issues from which consequences are seen. If I were to boil this concept down to a couple of points that I think everyone can relate to, it would be self interest and improved efficiency. Self interest, surely that can’t be good to? Aren’t we always telling our children not to be selfish and share our toys? There is a world of difference between self interest and selfish behavior. Self interest requires a person to be aware of all the factors which effect a person’s current well being and more importantly our future well being. Selfish interests only requires a person to be “in the moment” so instant gratification is key to all decisions and ultimately ends with poor results even though they may be masquerading as wonderful as the “Wolf of Wallstreet” found out. The idea that a rising tide floats all boats is a great platitude illustrating the reason the self interest will actually include other’s interests as well. If I work to better my company at the expense of other companies I may do well but if by my actions I raise the visibility of the industry, for example, I may increase the number of future customers and if I’ve got the best quality product then people will buy more of my product than others but I’ve helped all of the other companies by increasing the visibility.

Which leads us to another big factor of why capitalism works and that is promoting efficiency. If I have to compete with other companies or other products and services then I know I have to make it cheaper AND better than anyone else otherwise no one will want what I have to offer at the price I need to pay for my salary. So many examples of this throughout history, look at electronics and the new developments, look at the oil industry, oil prices drop and they find new ways to make a profit. How many other areas can we apply this simple principle too. If there is no requirement for higher efficiency then there is no incentive to improve. If by working harder and better than the guy next to you, you receive no additional compensation, either time or money, then how long will you continue to work harder when the guy next to you at work has everything you have but goes home each evening refreshed and you’re exhausted. Not long I’d wager. This ultimately impacts the company you work for, no one will put the extra effort into making the company better. A form of this occurs in the government with their various job classifications. You don’t get promoted above a certain level until you have a certain seniority regardless of how good you are or how hard you work, so why work harder. This is incentivized inefficiency and it happens in all monopolies which is why there are so many rules against it in the market place and which begs the question of why you would want the ultimate monopoly, government, to run the healthcare or control the health care industry. What would it look like if there was some competition among the insurance companies that choose to provide health insurance. Hmmmm Not to get distracted by this thought, the incentivized inefficiencies also creates the potential for people to “game the system”. Again, it’s driven by our need to protect our self interest. If by controlling your reported income you can get the government to pay for even more of your services, such as health care, you’ll get people to pay off the record or just due only what has to be done and no more in order to receive the “free healthcare”. So, it would be important to ensure there is a self interest incentive in every regulation or law the government creates to reach a broader interest.

Creating incentives for a broader self interest is certainly easier said than done to be certain but an advantage we have in this country is our freedom of choice and our basic competitive nature. We are in danger of training the basic concepts of competition and true self interest out of our society. People don’t really understand the meaning of self interest, they confuse it with selfish behavior and do everything they can to distance themselves from selfishness. The only thing wrong with that is the baby gets thrown out with the bath water. Competition suffers from the same affliction. In school we teach the children that everyone is a winner and the trophy should go to the winners and losers so no one feels slighted. Well maybe we should teach our kids that some are good at academics and some in athletics, some in the sciences and others in the arts or communication. I’m pretty good at athletic endeavors but no matter how hard I work at it I’ll never be as good at basketball as Michael Jordan or as good in golf as Tiger Woods. There are individuals who accel in some areas that others don’t, our teachers need to embrace this concept and teach our children to appreciate others gifts even as we enjoy our own. If they can’t do that then perhaps, just perhaps they are in the wrong profession. Hmmmmm – food for thought!!!